Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Tabcorp drives L1’s activist strategy
Back in July this year, we covered the launch of L1 Capital’s L1 Catalyst Fund, which focuses on unlocking company value via shareholder activism. The group also runs a successful long-short listed investment company (LIC), with the shares now trading at around $2.50, well above the IPO price of $2. From its lows hit in March last year, the LIC has risen roughly 25%. The LIC’s NTA has grown by 70.1% over the last year.
The Catalyst fund takes a different approach, investing in a highly concentrated portfolio of six to eight stocks, led by ex-investment banker James Hawkins, who has about 20 years professional experience under his belt. The companies are selected using ‘quality’ and ‘value’ considerations, combined with a potential catalyst that makes the stock attractive.
The fund has disclosed that it will be an activist investor, using activism and pressure to enhance corporate governance and protect the interests of shareholders. In L1’s view, successful activist investing generally requires the fund to have sufficient scale to build a meaningful stake, have access to management, the board and other institutional shareholders, and the resources to dedicate to an activist campaign. L1 Capital manages about $4 billion in its Australian equities funds, enabling the group to be a significant shareholder and have access to all relevant stakeholders.
So far so good…
The L1 Capital Catalyst fund delivered 2.2 per cent for its first month, compared to the S&P/ASX 200 Accumulation Index’s 1.1 per cent. L1 says the market is at “the beginning of a M&A ‘super cycle’ which provides numerous opportunities for the Catalyst Fund. Over the past three years, activism has been the top-performing investment style globally and we believe the current market backdrop is ideal for this strategy going forward.”
Tabcorp (ASX: TAH) has been a key contributor of the initial success, with L1 disclosing that it had “engaged privately with Tabcorp management on potential value-optimising restructuring opportunities across the last 15 months, including a demerger or sale of the wagering business, restructure of the gaming business and a reset of contractual arrangements with key racing bodies.”
Its other key holdings are split across the four key “catalysts,” being strategic and restructuring, financial, operational performance improvement and governance with M&A playing an important role in the process.
M&A deal volume has risen since the beginning of 2021 and looks set to continue along this trajectory. There have been quite a few notable M&A deals throughout the year such as the $39 billion takeover of Afterpay and the $19 billion merger proposal for BHP’s petroleum (ASX:BHP) business with Woodside (ASX:WPL).
